Ask Creditnet: Dealing with Closed Credit Card Accounts

Dear Creditnet: I recently lost my job and won't be able to make next month's credit card payment. So I called the credit card company to discuss my options. Less than a week later, they closed my account without even notifying me. I was told by a customer service agent that it didn't matter whether I closed the account or they did because it affects my credit the same. Is this true? Also, is there a way to get this off my credit report now? Or should I just wait for it to go to collections and then negeotiate a "pay for delete"?

Answer: As you've unfortunately experienced, credit card issuers can still close accounts whenever their little hearts desire. If you're not late on payments and they choose to close your account, the notation will simply show up on your credit reports as something like "Account Closed By Creditor". There's nothing you can really do to get this removed, as it's accurate information and should be noted on your reports.

And while closed accounts generally have a negative effect on your credit score, this entry itself isn't what will hurt your score. The loss of available credit, which affects your credit utilization ratio, or shortened length of credit history are most likely the variables that will have the greatest impact on your credit score when an account is closed. It's actually true that it doesn't make a difference whether your creditor shut down the credit card or you requested the closure. According to Ron Griffin, a director at Experian, "which party closed the account has no bearing on a credit score."

However, don't forget that potential lenders may express concern when they take a closer look at your credit reports and find several accounts closed by creditors. They prefer to see accounts closed by you, not your credit card company. So it never hurts to ask your creditor to make the change. Now, even though your account is closed, you still need to at least make your minimum payments or pay off the balance in full.

The credit card company's hardship department should be willing to work with you to develop a payment plan, but don't expect to negotiate any sort of settlement as long as you have income and are making timely payments. Try to agree upon a payment plan that you can afford, and then stick to the plan and pay off the debt as soon as possible. In addition, it's a good idea to do your best to resolve this matter while the account is still in good standing with the original creditor. If you ignore the issue and wait for the account to go to collections, you may even end up with two negative marks on your credit reports for the same account—one from the original creditor and one from the collection agency.

Besides, original creditors are typically much easier to work with than the average collection agency. Debt collectors can be downright nasty.

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Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years. He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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